Voluntary carbon markets: a misunderstood climate solution

Critics who dismiss voluntary carbon markets as greenwashing are overlooking people who are in desperate need of climate finance. Yes, carbon markets have problems that need fixing. But they are an essential solution for communities on the frontline of climate change.

Men in Assam, India, preparing flood defences.
Men in Assam, India, preparing flood defences. "I agree that we need to reduce carbon, but we need to reduce in the right places with the first priority being the people at the forefront of the climate crisis," says Choudhury. Image:Asian Development Bank/Flickr

A sustainability head of a company rose to the microphone at a conference the other day and proclaimed to the world that they intend to reach net zero by 2040 adding, with emphasis, “without using carbon offsets”.

While the audience applauded, I was left speechless as I wondered what would happen between now and 2040 and how nobody seems to be bothered about that. 

But I was expecting this response. The crowd comprised mainly of woke folk who had been fed the offsets greenwashing story [a recent story in the Guardian alleged that 90 per cent of Verra-certified carbon credits are “worthless”] and believe that offsets are a “licence to pollute”.

Meanwhile, companies that don’t do anything about the climate seem to be in the clear. Damned if you do, great if you don’t seems to be the way to go.

What kind of voluntary offsets have swayed public opinion, really, ever? BP, for example, can go ahead and voluntary offset its way to Timbuktu and back. Public opinion will not change about their oil spills – and rightly so.

How do I explain to a kid in a refugee camp who has seen light in his shanty for the first time that the offset sale that financed his light and solar panel is slammed by educated people in the West as greenwashing?

This is where the word “voluntary” needs to be underscored. They don’t have to offset. But it’s the difference between doing something about your emissions (not perfect but good) and not doing anything at all (which greenwashing allegations encourage).

Maybe a small donation to a highly reputed international NGO, with your CEO going for a photo opportunity somewhere in Africa would do the job (whoever said that was greenwashing?).

Even if companies manage to reach net zero without offsets, this doesn’t help the lives of people in the Global South, who are first responders to climate change and desperately need climate finance to forge a sustainable growth path.

I agree that we need to reduce and remove carbon, absolutely, but in the right places, with the first priority being the people at the forefront of the climate crisis. 

Carbon reduction does not happen in one day. It can take years, even decades for technology and underlying costs to evolve. Vulnerable communities severely impacted by climate change do not have that kind of time.

The US$100 billion pipe dream

Western think tanks who ask us to follow the science often forget about the social science of the climate crisis. The science is not only about limiting warming to 1.5°C. There is the science of adaption for the millions in the Global South who are already bearing the brunt of climate change.

We need every dollar we can spare. An ambitious US$80 a tonne science-based carbon price paid by a company means nothing to me or any of the communities we work with. Give us a fraction of that price and you will see magic happening with quadruple the climate impact.

Public climate finance has been a sham. The US$100 billion a year commitment the industrialised world promised developing countres remains a pipe dream. Heck, they even counted loans as climate finance. I do not see John Oliver [the comedian who recently lambasted carbon offsets as “bullshit” on his show] doing a show on that. A fraction of what was promised in 2009 has been realised so far.

The Green Climate Fund [a fund set up in 2010 to help developing countries adapt to climate change], well, you need to go through a two-to-three year readiness programme just to apply.

Let us now see how much is pledged for ‘loss and damage’ and how much is actually paid out [200 countries agreed to set up a fund to help climate vulnerable nations cope with climate disasters at the COP27 climate talks in November]. The key point here is that governments are the only ones who will access this money. There is an urgent need for communities to access benefits directly. That is the gap the voluntary carbon markets fill.

Not perfect but necessary

Don’t get me wrong. The voluntary carbon system is not perfect. It is an evolving space with shortcomings. There are loopholes and scams going on. It can potentially have negative impacts on ecosystems without due safeguards, can lead to a change of commercial agrarian structures, and there are issues with neo-colonialism. But the concept itself has a lot of merit and there is good work being done.

I have seen this first hand. We work with millions of smallholders in South Asia, farmers whose entire year’s family income is less than US$300. We help create value chains for them (warehousing, access to credit, market linkages, and so on). We work with Indigenous communities, where women who are traditionally kept out of the mainstream are forming self-help groups and their own micro credit programmes.

We are not the only ones doing this. There are hundreds of organisations in Asia, Africa and Latin America striving to work with climate first responders, enabled by climate finance. This is all audited, science-based, with years of research and expertise behind it.

How do I explain to a kid in a refugee camp who has seen light in his shanty for the first time in his life that the offset sale that financed his light and solar panel is slammed by educated people in the West as greenwashing?

Moreover with carbon finance, we could have local organisations with the right intent and project, hold their own in a business transaction with a counter party, resulting in a more balanced power structure than grant-based funding from big donors, while also more results-based than usual grant funding.

These carbon finance projects come with delivery commitments and available legal recourses – something that is practically non-existent in other forms of development finance.  

Carbon projects are long term with sustainability budgets built into programmes. How many times have we heard of development projects fizzling out after the first few years due to lack of finance? Some land-use carbon programmes are designed for 30 years or more – that is how you ensure impact.

Carbon finance forms the basis for science-based climate action and not just arbitrary philanthropic action. For example, a company that asked me to help out with their climate strategy. They were very proud of the fact that they were planting half a million trees every year.

My first question to them: How many of those 500,000 you had planted four years ago are still alive and growing well? And do you know who has land titles to the land you planted on? They didn’t know.

Question 2: How do these 500,000 trees affect your scope 1 and 2 emissions? They didn’t know.

Turns out that these guys need to plant 20 million trees in the next two years just to account for their scope 1 and 2 emissions for the next five years – even after they met their internal reduction target of 20 per cent.

In other words, they need to restore an entire ecosystem and maintain it for 20 years. This is an unheard of prospect for a sustainability world immersed in perception-based CSR spend.

Again, I acknowledge there are issues. We worry about them and so do the standards – something that is lost in the mainstream discourse on voluntary offsets. All these projects follow rigorous eligibility tests and methodologies reviewed by standards, are audited by third parties every year and have information open for the public  – more transparent and rigorous than most other development projects.  

It is nauseating to see academia, media, think tanks and politicians in the Global North ganging up on offsets. There are people sitting on their high horses in Berlin, Zurich, New York or London deciding on whether or not Indigenous communities in sub-saharan Africa should have access to much deserved climate finance. Communities who face the brunt of climate change, for no fault of theirs.

So much so that even civic society in the Global South has been fed this story of offsets as a ‘no-go zone’. These are the same organisations who want governments to pay for loss and damage, but have a problem when the same is asked of private companies in the West.

Are loss and damage pay-outs a license to pollute for western governments? Would you still hold them accountable to their nationally determined contributions? Of course you will. Then why are offsets different? ‘Polluters pay” is what I see on a lot of climate banners. So why are we screaming from the rooftops when they are indeed being made to pay?

Should we still campaign for higher transparency on emissions? Of course we should. Should companies be held to high standards of internal abatements? Of course they should. But for climate action to be just, internal abatement should be simultaneous to offsets, not just for residual emissions.

In my view, an equal split between internal abatement and offsets is the way to go for a just transition. 

Internal abatement can be accelerated by the use of jurisdictional emissions trading systems (compliance carbon markets, your actual license-to-pollute credits) or a carbon tax, but with high costs which incentivise immediate carbon abatements. The resultant decarbonisation graph that you would see then would be a much more ‘just’ one, faster in achieving tangible climate impact and more economic.

There are scams everywhere. The stock markets haven’t shut down because there were and are scams every other day. Yes, there is a lot more carbon markets can do to build trust, but it’s so difficult to start making that nuanced discussion mainstream, as offsetting is immediately decried as greenwashing, and the discussion becomes a non-starter.

There are many instances of new market participants and corporates trying to understand voluntary carbon markets but shy away citing reputational risks. I implore all organisations, civil, government and private, to try to understand this space more. Maybe physically visit a project or two, and then form a view.

Your opinion matters. And it matters to the millions in the Global South, our true first responders, who do not have much else to hang on to.

Sandeep Choudhury is co-founder of VNV Advisory Services, a social enterprise working with climate-vulnerable communities in Asia and Africa

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